Smaller Companies: Fine conditions for investors to take some Holliday

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The Independent Online
THE STOCK market has shown a healthy appetite for flotations this year thanks to growing confidence about an economic upturn in the UK.

One reason is that new issues provide a relatively cheap way of buying equities. Most sponsors like to price flotations at a discount to the market to ensure a good debut.

Many of this year's new issues have been high-quality niche businesses. This is presumably because well-run companies are the only ones that can offer a robust track record after three years of recession.

The latest issue attracting interest is Holliday Chemical Holdings, a manufacturer of industrial dyes and inks and chemicals for pharmaceutical and veterinary markets.

The company is raising pounds 33m via a placing and offer sponsored by NM Rothschild, the merchant bank, valuing it at pounds 161m. A total 10.1 million shares are being offered to the public at 195p each and another 30.5 million are being placed with institutional investors.

Seven years ago, Holliday was the subject of a management buy-in led by Michael Peagram, its current chairman and chief executive, with venture backing from Natwest Ventures, Apax Partners and 3i. Since then it has grown by concentrating on selected niches in the speciality chemicals industry. As well as organic growth, it has benefited from six acquisitions including the pounds 23m purchase of William Blythe from Hickson International in 1991.

The group's operating profits have increased from pounds 5m in 1988 to pounds 12.6m last year on turnover up from pounds 26m to pounds 97m. About 28 per cent of the group's sales come from the UK, almost half from Continental Europe and the balance from North America and Asia. About half the flotation proceeds will be used to reduce net debt to about pounds 10m.

Holliday's management is likely to continue to be acquisitive, although it says no purchases are presently planned. In addition, sterling's devaluation should help the company compete against its big German rivals. With a strong growth record during a recession, and a proven acquisition strategy, Holliday's shares are likely to mark a confident debut.

Although they are being offered on a demanding 18 times pro forma earnings - a premium to the market - investors should lock away some Holliday shares for the long term. Applications close on Thursday.